10-Q: nCino Reports Q2 Growth, Strategic Acquisitions & Restructuring

nCino, Inc. announced its second-quarter results for fiscal year 2026, showcasing revenue growth driven by subscriptions and strategic acquisitions, alongside a significant restructuring plan and share repurchase program.

Summary

• Total revenues increased 12.4% to $148.8 million for the three months ended July 31, 2025, and 12.5% to $293.0 million for the six months ended July 31, 2025.
• Subscription revenues grew 14.8% to $130.8 million for the three months and 14.3% to $256.3 million for the six months ended July 31, 2025.
• Net loss attributable to nCino, Inc. increased to $15.3 million for the three months ended July 31, 2025, from $11.0 million in the prior year.
• Net loss attributable to nCino, Inc. for the six months ended July 31, 2025, improved to $9.7 million from $14.0 million in the prior year.
• The company completed the acquisition of Sandbox Banking for an aggregate purchase price of $62.9 million, inclusive of an additional earn-out opportunity of up to $10.0 million, enhancing data connectivity.
• A workforce reduction of approximately 7% and office space reductions were announced as part of a Restructuring Plan, incurring $10.1 million in charges during the second quarter of fiscal 2026.
• A $100.0 million stock repurchase program was authorized in March 2025, with $60.5 million already used to repurchase 2.6 million shares as of July 31, 2025.
• Cash and cash equivalents stood at $122.9 million as of July 31, 2025, with $203.5 million outstanding on the revolving credit facility.

Sentiment

Score: 6

Explanation: The company demonstrated solid revenue growth, particularly in subscriptions, and improved its year-to-date net loss. Strategic acquisitions and a share repurchase program indicate proactive management. However, the quarterly net loss increased, and professional services margins declined, reflecting ongoing investments and restructuring impacts. The overall sentiment is cautiously optimistic, acknowledging growth alongside necessary operational adjustments.

Positives

• Total revenues increased by 12.4% for the three months ended July 31, 2025, reaching $148.8 million, and by 12.5% for the six months, reaching $293.0 million.
• Subscription revenues, the core business, grew by 14.8% to $130.8 million for the three months and 14.3% to $256.3 million for the six months ended July 31, 2025.
• Net loss attributable to nCino, Inc. for the six months ended July 31, 2025, improved to $9.7 million from $14.0 million in the prior year, indicating progress towards profitability on a year-to-date basis.
• The acquisition of Sandbox Banking strengthens the company's ability to enhance data connectivity and streamline operations for financial institutions.
• The Board of Directors authorized a $100.0 million stock repurchase program, with $60.5 million already utilized to repurchase 2.6 million shares, demonstrating a commitment to shareholder returns.
• Net cash provided by operating activities increased to $72.1 million for the six months ended July 31, 2025, up from $59.4 million in the prior year.
• Other income (expense), net, saw a significant increase of $17.4 million for the six months ended July 31, 2025, primarily due to foreign currency gains related to intercompany loan remeasurement.
• The signing of H.R. 1, the One Big Beautiful Bill Act, is expected to allow for more favorable deductibility of certain business expenses, potentially increasing future operating cash flows through reduced tax remittances.

Negatives

• Net loss attributable to nCino, Inc. increased to $15.3 million for the three months ended July 31, 2025, compared to $11.0 million in the prior year.
• The gross margin for professional services and other revenues decreased significantly to (25.7)% for the three months ended July 31, 2025, from (11.2)% in the prior year, and to (20.9)% for the six months from (10.5)%, primarily due to strategic investments and lower effective billing/utilization rates.
• Interest expense increased by $2.6 million for the three months and $5.6 million for the six months ended July 31, 2025, primarily due to increased borrowings on the revolving credit facility.
• Total operating expenses increased to $97.4 million for the three months and $185.4 million for the six months ended July 31, 2025.
• A workforce reduction of approximately 7% was implemented as part of the Restructuring Plan, incurring $10.1 million in charges.
• The outstanding balance on the revolving credit facility increased to $203.5 million as of July 31, 2025, from $166.0 million at January 31, 2025.

Risks

• Future growth depends on the ability to expand reach to new financial institution customers and increase adoption with existing customers, requiring focused direct sales and convincing FIs to replace legacy systems.
• Successful implementation of the new asset-based pricing model, which formally started in fiscal 2025, is a key driver for future revenue alignment.
• Growing the customer base will require increasing penetration in international markets, which accounted for 22.5% of total revenues for the three months ended July 31, 2025.
• Sales cycles for new customers are typically lengthy, ranging from 6-9 months for smaller FIs to 12-18 months or more for larger FIs.
• The macroeconomic environment, including fluctuating interest rates and inflationary pressures, has negatively impacted the U.S. Mortgage business, affecting demand for mortgage-related products and services.
• The company's cost of subscription revenues includes fees paid to Salesforce for platform access, creating reliance on a third-party platform.
• Initial accounting for recent acquisitions (FullCircl and Sandbox Banking) is not complete, and further measurement period adjustments may occur, potentially differing materially from preliminary fair values.
• Contingent consideration for the Sandbox Banking acquisition, with a maximum potential payment of up to $10.0 million, is subject to the achievement of certain targets.
• Exposure to foreign currency exchange risk due to operations in multiple currencies, which can impact revenues and operating results when translated to U.S. dollars.
• Exposure to increased interest rate risk due to variable interest rates on the $250.0 million revolving credit facility.
• Management's estimates and assumptions, particularly for the valuation allowance on deferred tax assets, involve significant judgment, and actual results could differ.
• The company is involved in legal proceedings and claims in the ordinary course of business, which, while not currently deemed material, could have future adverse effects.

Future Outlook

The company expects subscription revenues to continue making up an increasing proportion of total revenues. It plans to increase investment in product development, sales, and marketing both domestically and internationally to drive growth and optimize operating plans for revenue growth and profitability. Cost of subscription revenues is anticipated to increase in absolute dollars with user growth, while research and development, and general and administrative expenses are expected to decrease as a percentage of revenues by leveraging existing technology investments and operational efficiencies. The company believes current cash and available credit will be sufficient for at least the next 12 months, but may seek additional capital for future growth. The Restructuring Plan is expected to finalize in the second half of fiscal 2026, and new tax legislation (H.R. 1) is projected to increase future operating cash flows.

Management Comments

• nCino's trusted platform enables FIs to consolidate vendors while optimizing operations by integrating artificial intelligence ("AI") and actionable insights to cohesively bring together people and data and thereby enhance strategic decision-making, risk management, and customer satisfaction.
• Our new Intelligent Solution Framework pricing model helps ensure the value-based positioning and pricing of our products and creates an opportunity to embed intelligence into all our solutions.
• By moving away from a seat-based pricing model to pricing directly correlated to the FI's assets, transaction or processing volumes, we began to more directly align our revenues to the usefulness the nCino Platform provides as nCino creates efficiencies for our customers.
• We expect enterprise FIs to make up a greater proportion of our nCino Platform sales.
• We will continue to monitor the impact the macroeconomic environment may have on our business.
• We intend to continue to increase our investment in product development in the coming years to maintain and build on this advantage.
• We also intend to invest in sales and marketing both in the U.S. and internationally to further grow our business.
• To capitalize on the market opportunity we see ahead of us, we expect to continue to optimize our operating plans for revenue growth and profitability.

Industry Context

nCino operates in the dynamic software-as-a-service (SaaS) sector, specifically catering to financial institutions (FIs). The company's focus on streamlining operations, integrating AI, and providing data-driven insights aligns with broader industry trends towards digital transformation and automation in financial services. Its strategy of consolidating vendors and shifting to value-based pricing (asset/volume-based) reflects an industry-wide move to deliver and charge for tangible customer outcomes. Recent acquisitions like Sandbox Banking, DocFox, ILT, and FullCircl demonstrate a competitive approach to augmenting platform capabilities across various banking functions, from mortgage lending to customer onboarding and analytics. The noted negative impact on the U.S. Mortgage business due to macroeconomic factors highlights the sensitivity of certain FinTech segments to external economic pressures.

Management Changes

Corporate Governance

Legal Proceedings

• The company is involved in legal proceedings or subject to claims arising in the ordinary course of business from time to time.
• Management believes there are no proceedings or claims pending against the company that are likely to have a material adverse effect.
• Litigation expenses for the six months ended July 31, 2025, were $250 thousand, related to a closed government antitrust investigation, a related settled civil action, and a dismissed shareholder derivative lawsuit.

Related Party Transactions

• During the first quarter of fiscal year 2026, the company sold all its shares in Zest AI, which was previously considered a related party due to Insight Partners' affiliation. A realized gain of $1.2 million was recorded from this sale. At the time of this transaction, Zest AI was no longer considered a related party.

Stakeholder Impact

• Shareholders: Potential for increased share value through the stock repurchase program; dilution risk if future equity financing occurs; impact from net losses and strategic investments.
• Employees: Workforce reduction of approximately 7% due due to the restructuring plan; potential for stock-based compensation; impact from acquisitions on headcount and roles.
• Customers: Enhanced platform capabilities through strategic acquisitions (Sandbox Banking, FullCircl, DocFox, ILT); potential for improved efficiency and customer satisfaction through new solutions and pricing models.
• Creditors: Increased revolving credit facility borrowings ($203.5 million outstanding); compliance with financial covenants (Consolidated Total Leverage Ratio not exceeding 4.00:1.00, Consolidated Interest Coverage Ratio not less than 3.00:1.00).
• Suppliers/Partners: Continued reliance on Salesforce for platform access; collaboration with System Integration (SI) partners for professional services delivery.

Next Steps

• Finalize the Restructuring Plan in the second half of fiscal 2026.
• Continue to increase investment in product development to maintain and build on market advantage.
• Continue to invest in sales and marketing both in the U.S. and internationally to further grow the business.
• Continue to optimize operating plans for revenue growth and profitability.
• Continue to assess the rates used in preliminary valuation methods for FullCircl and Sandbox Banking acquisitions until final information becomes available.
• Evaluate the impact of ASU 2024-03 (Income Statement Reporting Comprehensive Income Expense Disaggregation Disclosures) and ASU 2025-05 (Financial Instruments-Credit Losses) on consolidated financial statements.
• Potentially seek to raise additional capital to support growth.
• The option period for redemption of nCino K.K. non-controlling interest begins in 2027.

Key Dates

Recommendation

While nCino demonstrated solid subscription revenue growth and an improved year-to-date net loss, the increase in quarterly net loss and the significant decline in professional services gross margin warrant caution. The company is undergoing a strategic transformation with multiple acquisitions and a substantial restructuring, which introduces both opportunities and integration risks. The share repurchase program is a positive for shareholder value, but increased debt to fund acquisitions and repurchases needs monitoring. Given the mixed financial signals and ongoing strategic adjustments, a 'Hold' recommendation is appropriate as investors await clearer signs of sustained profitability and successful integration of new businesses.

Keywords

SaaS, Financial Technology, FinTech, Banking Software, Loan Origination, Digital Transformation, Cloud Computing, Financial Institutions, Mortgage Lending, Customer Onboarding, Risk Management, AI, Automation, SEC Filing, 10-Q, Earnings Report, NCNO, Restructuring, Share Repurchase